CBDT may scan companies’ outbound investments

MUMBAI: Indian corporations putting in operations out of the country and, within the process, resorting to competitive tax making plans by the use of investment constructions to mitigate their tax legal responsibility could to find themselves within the harsh highlight of the taxman.

“We now need to recall to mind preserving and augmenting our tax base. We have to have a look at the Indian business, which is launching globally. We haven’t but paid much attention to this a part of tax compliance (relating to outbound investments). We had been extra eager about inbound investments,” mentioned Akhilesh Ranjan, member (law), Central Board of Direct Taxes (CBDT).

Ranjan could also be convener of the duty force for drafting a brand new direct tax code (DTC). “It is now time to have a look at what mechanism Indian business is employing to reduce its tax liabilities. If there are loopholes within the regulation, we need to take measures to safeguard in opposition to that,” he added.

Speaking at a tax convention organised by means of the Foundation for International Taxation (India) collectively with The International Bureau of Fiscal Documentation, Ranjan equipped a wide street map of the conceivable long term traits within the tax arena, particularly in international tax. Overseas investments by means of India Inc are moderately vital. According to the RBI’s statistics, outward foreign direct investment (comprising fairness, loans and promises) stood at $1,757 million in October this yr as compared to $1,962 million in October 2017.

Speaking to TOI on the sidelines of this convention, Ranjan elaborated that competitive tax making plans, which results in parking of budget — such as by means of royalty payment to comparable entities in tax-favourable jurisdictions — is without doubt one of the problems that may be examined. He pointed out the measures taken by means of the US as a part of its tax reforms to curb income leakage and garner its share of tax through BEAT.



While no tax proposal will probably be rushed into, the method of exam and deliberations on steps that can be taken to forestall income leakage appears to have begun. In order to curb foreign exchange outflows, plans to curb excessive royalty payments to comparable events out of the country by means of prescribing limits is already on the time table of the federal government.

Referring to the current sizzling matter within the tax arena — the demanding situations of taxation in a digital economic system — the CBDT member mentioned, “You cannot ring-fence a digital economic system. Business itself has turn into digital.”


India has in place an equalisation levy, which is imposed at 6% on B2B commercials, the place payments made by means of the Indian entity to a foreign company exceeds Rs 1 lakh in a yr. Ranjan referred to this as an intervening time measure and pointed out the importance of the concept of ‘vital financial presence’ for determining tax prevalence.


Under new digital industry fashions, a non-resident company can lift on a industry and have interaction with consumers in another country with no need a physical presence in that country. India’s long-standing position in international tax discussions is that the value of digital industry could also be created by means of the buying power of the marketplace the place the goods and services and products are fed on.


It is also recalled that on July 13, CBDT invited feedback and recommendations on ‘vital financial presence’, which might cause a tax legal responsibility for the foreign entity. India had offered this concept under segment four of the Finance Act 2018. CBDT has sought comments on the income threshold of transactions that may denote vital financial presence and the brink for choice of customers. “We are lately examining this and hope to get a hold of a viable industry style. In addition, we continue our dialogue with the international neighborhood,” Ranjan mentioned.


CBDT may scan companies’ outbound investments CBDT may scan companies’ outbound investments Reviewed by kailash soni on December 09, 2018 Rating: 5
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